1. Field of Invention
The present invention generally relates to a system and method for approving a transaction over a communications network between a merchant and a customer. More specifically, the present invention is directed to a system and method for approving a transaction between a merchant and a customer, wherein the transaction occurs over an electronic network (such as the Internet) and wherein the customer pays for a product using electronic cash in one currency and the merchant receives electronic cash for the product in a different currency.
2. Description of the Prior Art
Soon, international commerce may be a common experience for almost everyone. This is due, in large measure, to computer networks, including the Internet, which link individuals, consumers, businesses, financial institutions, educational institutions, and government facilities. In fact, the growth in international commerce appears limitless given the forecasts relating to the commercial use of the Internet and the like.
There is a problem, however, inherent in international commerce, electronic or otherwise. The problem exists, for the most part, because monetary systems differ from country to country. That is, money is generally expressed in different currencies in different countries and the value of the different currencies vary greatly. Currency conversion is widely used to convert money from one currency into money of a different currency.
As used herein, the term "currency" includes, but is not limited to, denominations of script and coin that are issued by government authorities as a medium of exchange. A "currency" also may include a privately issued token that can be exchanged for another privately issued token or government script. For example, a company might create tokens in various denominations. This company issued "money" could be used by employees to purchase goods from merchants. In this case, an exchange rate might be provided to convert the company currency into currencies which are acceptable to merchants.
In each instance, currency conversion represents a significant economic risk to both buyers and sellers in international commerce. For example, assume a customer desires to buy a product from a merchant. Further consider the scenario where the customer pays his credit card bills in U.S. dollars and the merchant only accepts French francs for the products he sells. The customer uses his credit card to pay the merchant for the product. The merchant receives French francs.
Typically, at an undetermined later date, the company issuing the credit card would bill an amount to the customer in U.S. dollars. The amount billed to the customer is determined by an exchange rate used at the time the credit card company settles the transaction. This settlement is often at an indeterminate time and could be on the date of purchase or several days or weeks later. The time of this settlement is at the credit card company's discretion. The risk to the credit card company is minimal because the credit card company can settle the transaction when exchange rates are favorable. Thus, in this case, it is the customer who bears the risk that the value of the customer's currency will decline prior to this settlement.
As another example, consider a cash transaction where a merchant accepts a currency other than that of his country's currency. In this case, the merchant sells the currency to a currency trader, usually at a discount. The price the merchant charges to the customer who pays cash reflects both the cost of currency conversion (the discount) and the risk that the rate used to establish the price of the product in a particular currency may have changed. This results in the customer paying a higher price for the product and the merchant incurring risk due to a possible change in currency exchange rates.
Thus, the described post sale methods of currency exchange may impart significant risk upon the customer and the merchant. Risk is typically on the side of whoever commits to the currency conversion. Specifically, in a cash transaction, the customer bears the risk when currency is converted prior to purchasing a product. The merchant sustains the risk when he converts the customer's currency into his own currency. Also, in the case of transactions on the scale of a few cents, the cost of currency conversion may be greater than the currency is worth.
As yet another example, consider the risks that an individual assumes when he converts from the currency of his country ("native currency") to a different second currency. In this case, the individual can purchase goods at a price in the second currency, but cannot be certain of the value of the second currency relative to his native currency. In this case, the currency exchange has occurred pre-sale. Thus, the individual assumes the risk of devaluation of the second currency against the first currency. Further, the customer bears the risk that the second currency may cease to be convertible into his native currency.
It is noted that if the individual desires to purchase an item in a third currency which differs from the native and second currencies, he must undertake at least one additional currency conversion (converting either his native currency to the third currency, the second currency to the third currency, or a combination of both). In this case, the customer assumes an additional risk.
The present invention recognizes that international commerce over electronic networks, such as the Internet, cannot reach potential unless customer and merchant obligations relating to transactions are fixed at the time of the transaction so that the risk to these parties associated with currency exchange is minimized. Thus, what is needed to encourage the development of international commerce over such networks is a system and method that offers a means of eliminating the uncertainty associated with multi-currency transactions. One aspect of the present invention is the shift of the risk associated with currency exchange from both the merchant and customer to a third party (e.g., a server) in real time. This server may assume the risk itself or may choose to subsequently pass on the risk to a fourth party (e.g., a bank or other financial institution).